Much has been written about FinMin Varoufakis' all-encompassing proposal which he made at the last Eurogroup meeting and which is here. Varoufakis has claimed that the others didn't even pay attention to it. Schäuble has made the cynical comment that "if there was a proposal, then none of us understood it."
I would like to give my reaction to the proposal, not to the content of it but, instead, to its form. The issue is decision-making at top levels.
Top executives are not interested in prose. In fact, at the last bank where I worked, the management board had explicitly prohibited prose in board presentations. Only facts in the form of bullet statements and numbers, and all of it on only few presentation slides. Explanatory comments could be made by the presenting person (again in bullet statements and not in prose). When we had difficult deals for board approval, we would spend days finetuning the formulation of the bullet statements to make them conduicive to board approval.
It was understood that all facts and numbers presented had been thorougly substantiated and checked for plausibility by the technical staff. The presentation had to clearly point out what the board should approve and why, and what the consequences and/or alternatives would be if the deal was not approved.
If a top manager had presented to the board something like Varoufakis' paper, the board members would have exchanged puzzled looks. What's the point of all of this? Doesn't he understand that we are here to make decisions and that we are not a debating club? The credibility of that top manager would have suffered greatly.
My understanding is that Lazard's is advising Varoufakis. If they had been given the paper and asked to put it into the kind of form which top level decision-makers require, they would have done that within 24 hours.
Why did Varoufakis not do that?
I would like to give my reaction to the proposal, not to the content of it but, instead, to its form. The issue is decision-making at top levels.
Top executives are not interested in prose. In fact, at the last bank where I worked, the management board had explicitly prohibited prose in board presentations. Only facts in the form of bullet statements and numbers, and all of it on only few presentation slides. Explanatory comments could be made by the presenting person (again in bullet statements and not in prose). When we had difficult deals for board approval, we would spend days finetuning the formulation of the bullet statements to make them conduicive to board approval.
It was understood that all facts and numbers presented had been thorougly substantiated and checked for plausibility by the technical staff. The presentation had to clearly point out what the board should approve and why, and what the consequences and/or alternatives would be if the deal was not approved.
If a top manager had presented to the board something like Varoufakis' paper, the board members would have exchanged puzzled looks. What's the point of all of this? Doesn't he understand that we are here to make decisions and that we are not a debating club? The credibility of that top manager would have suffered greatly.
My understanding is that Lazard's is advising Varoufakis. If they had been given the paper and asked to put it into the kind of form which top level decision-makers require, they would have done that within 24 hours.
Why did Varoufakis not do that?
Well. A lot of things could be said here. The first is simply that those who insist on the reduction of complex situations to bullet points are idiots. This may (repeat, may) be suitable for simple company decisions, but is not at all appropriate for the future of a country. Varoufakis was certainly right not to do that, although I may concede some issues related to it.
ReplyDeleteSecondly, whenever I have worked with politicians they demand that everything be put on one page. Sometimes, this is absolutely not possible, and I have demanded two pages. My impression is that they are intellectually too lazy to read many words. May I remind right wing polticians that Maggie Thatcher herself read around 1,000 words a day of various briefings? I doubt very much that any Eurogroup politicians had to read much of importance other than issues related to the Greek mess...
Thirdly, the Eurogroup is supposed to be a debating club. They are supposed to argue the future of the eurozone, aided by advisors and experts. These are political issues, not board management issues.
Fourthly, my understanding is that the Eurozone ministers did not actually have access to the documents. According to the article published by Varoufakis in an Irish newspaper, and confirmed by the Irish minister, no government minister was aware of any of the texts. If that is how the eurozone is managed, then it is no surprise that it is a total fuckup. That is not how intergovernmental fora work -- and I propose that the abolition of the Euro structure is the only way forward. Leaving decisions of such importance to unelected bureaucrats is a dereliction of duty, and suggests that politicians see themselves as highly paid rubber stamps.
The only point I will concede, is that Varoufakis probably made the error of overestimating the educational and intellectual capacity of the politicians across Europe. The three broad points at the end, should have been placed at the beginning so that idiots can read them easily. His mistake was to construct a rational argument, as opposed to making demands that had to be satisifed. Interesting how this is the exact opposite of the whining complaints that the Eurozone ministers continually make about the Greek position.
To that i may add, that it is impossible to present the "whole" plan to the Eurogroup. The whole greek plan is 47 pages, as was submitted to the "institutions'" technical staff. Varoufakis in the Eurogroup was supposed to give a summary. Varoufakis then said that he wasn't allowed to distribute his summary, in poor words.
Deletecorrection: Thatcher read 1,000 pages a day (not words!).
DeleteI think there are several possible explanations.One could be that his thinking is as unprecise as his proposals. That does not seem likely to me. As he is a professor of economics, on might assume that he is able to think and express himself clearly, even though there is no guarantee for that.
ReplyDeleteI suppose he does not want to make clear "proposals" on purpose. If you submit something that is clear you can be pinned down to it and have to deliver if the proposal is accepted. When your text is unclear you can always say that the others did not understand you, or misinterpret you. When you are unclear, it is also easier to mask the fact that there is no real substance in your proposal.
"Varoufakis has claimed that the others didn't even pay attention to it. Schäuble has made the cynical comment that "if there was a proposal, then none of us understood it.""
ReplyDeleteI think this is not exactly what Varoufakis claimed. Here is what he claimed:
Perhaps the most telling remark by any finance minister in that meeting came from Michael Noonan. He protested that ministers had not been made privy to the institutions’ proposal to my government before being asked to participate in the discussion.
To his protest, I wish to add my own: I was not allowed to share with Mr Noonan, or indeed with any other finance minister, our written proposals.
http://www.irishtimes.com/opinion/yanis-varoufakis-a-pressing-question-for-ireland-before-monday-s-meeting-on-greece-1.2256339
It is a moot point to criticize the form or the content, of something that isn't allowed to be presented...
I would like to rebuttle.
ReplyDeleteIn the 1st 3-4 months Mr. Varoufakis's proposals were too short and vague. Now they are too long and not to the point. Maybe his counterparts whould make up their mind as to what they want or a pdf format how he should presnt every time.
It is quite easy from the creditors side to judge, reject and stain negotiations.
This is all quite tiresome.
V
There is a misconception here. In the Eurogroup, prof. Varoufakis doesn't go with all details and numbers, because this is the job of Euroworking group. Many of the european FinMins are not even economists, but lawyers. Imagine if former greek FinMin Evangelos Venizelos (under George Papandreou's administration), who is a professor of Law, would be in position to assess a detailed economic plan presented to him. He wouldn't. The Eurogroup was supposed to be made for the greek matter. They 've suffered the speeches of prof. Varoufakis for months, but suddenly they couldn't? To me this is more part of the psychological warfare during the chicken game and a way to halt Tsipras' plan to circumvent the technical discussions in the Eurogroup, to seek a political solution, through political negotiation.
DeleteSorry, I understand you as: "First it was short and vague, now it is long and vague."
DeleteSo what remains is beeing vague. :-)
And that is the contrary of clear proposals, like in hard numbers and bullet points.
But I suppose the problem is elsewhere: Many Greeks assume bad faith of Troika-Side. In this up-to-date comment from the serious and influential German newspaper "FAZ" you can see down to the point how some Germans assume bad faith of Syriza-side: http://www.faz.net/aktuell/politik/ausland/europa/griechische-schuldenkrise-unser-problem-euer-problem-13659789.html
This loss of trust for any good faith of the other side is probably the main problem in finding a fair trade-off for both sides, as the definition of "fair" differs so strong .
Let me put it in simple terms: Varoufakis had hired Lazard's to advise him on the negotiations. He can't have accepted their advice because if he had, things would have gone differently. A Finance Minister is not required to know all the 'tricks' of how one makes effective presentations in a sovereign restructuring but he should be able to hire competent legal/financial advisors and, above all, to accept their advice.
ReplyDeleteWhatever one thinks of former PM Papademos, he had hired Lazard's for financial advice and Lee Buchheit for legal advice. The 2012 restructuring (including the haircut) went unbelievably smooth. It was truly astonishing by all international standards!
And you think Papademos (one of the irresponsible persons who took Greece into the euro) achieved anything at all for the people of Greece? The 2012 "restructuring" was a catastrophe in economic terms, and worse in social terms. We can only hope that Varoufakis and the others can do better
DeleteAnd I do not accept that smooth negotiations are good, in this context. When there is basic and substantial disagreement, the discussions can be expected to be nasty and prolonged (as they have been with Syriza). Anything else would be capitulation to the demands of foreign powers, and against the imterests of the Greek people.
Are you wearing blindfolds? Can't you see what happened to the country in the last 6 months? How long will it take Greece to get back to the surplus of 1-11/2014? How long will it take Greece to regain confidence on the part of foreign investors? How long will it take Greece to convince the world that not all Greeks are crazy?
DeleteYou arrogantly claim to speak for the Greek people. Well, I have one Greek person in my marriage and she would throw a pie at your face with Greek-style emotions if she knew your comments. And virtually all the people I know in Greece, from small village family to big city residents, feel ashamed about how the current government presents the country. You may consider such people useful idiots for vested interests. They consider themselves decent Greeks.
If nothing else, Papademos brought down Greece's interest expense from almost 13 BEUR in 2009 to about 5 BEUR after his restructuring. He pulled off history's greatest sovereign debt restructuring within less than 3 months. You may not like his policies but given the constraints he was in and the agreement he inherited, he achieved tremendous results.
Klaus: I do not claim to speak for the Greek people. I have no right to do that. However, I can tell you that the opinion polls and all the Greeks I speak with in Athens (and the UK) are overwhelmingly behind the Tsipras government and its negotiating style. Probably, your contacts in Greece are from different backgrounds than my contacts -- which is 100% university educated (some Greek, some US, some UK), employed in a range of professions, a few unemployed, and none is a member of Syriza. None is wealthy, but all are property owners with some small savings.
DeleteOf course, the arrival of the Syriza government created great fear amongst wealthy Greeks, and they removed their money from the banking system even before the results of the last election. They have continued doing so, especially in the last week. The poor in Greece do not have money to remove; the small businesses have little money to remove, but use banks for transactions.
So, what you are describing is how the wealthy of Greece have responded to a left government. Quelle surprise!
If i may say, there is no clear cut distinction between voters. SYRIZA usually has younger ages, but if one thinks that the rich don't vote SYRIZA, it's a mistake. As a matter of fact, before the crisis, SYRIZA had some of its biggest percentages in some of Athens' northern suburbs, where rich intellectuals of the left reside. Syriza's own MPs are in their majority far from being poor. As one can see here, with data taken from their official parliament declaration, 37 SYRIZA MPs alone, have 406 real estate titles (houses mainly), with one minister having 19.
Deletehttp://goo.gl/3QYii2
As for bank accounts, i think the vast majority of Greeks independent of amount, has in one way or another removed his bank deposit months ago.
Polls are hard to trust these days, for example, the most recent poll presented by SYRIZA's newspaper, gives SYRIZA 47,5% and ND 19.5%. But what is more interesting, the sum of all percentages in the poll, gives 120%...
In another poll, about 45% of SYRIZA voters want Grexit. The majority supports the goverment in the negotiation, but no poll that i remember has entered into the detail to ask whether they agree with the style. The people hope for results.
Nobody can speak on behalf of "everyone". And i will reiterate, that there is no such thing as "one Greek". If there was, the political life in Greece would have been less turbolent.
@Anonymous 10:28
DeleteYou need to study that poll in detail. indeed the percentages given are correct but the pollsters states that the percentages are not who you vote for but what the pollsters think based on the questionaire citizens will vote for. The 20% unclarified vote is a piece of information of which the pollsters believe will contribute greatly to Syriza. The specific pollstr falls in on the money very time.
On a personal note i do believe if elections where held today indeed Syriza would maintain 50% of th votes. I will justify this answer by simple mathematics.
Based on the negotiations and as it seems the deal will be closed, no direct haircuts will be made to pensions. Just some extra taxes. Syriza by re opening ERT proves that they are devoted to protect the public sector. Hence it is a simple computation. If Greece has 1 million public workers the majority will vote for Syriza as they will be protected by them. Equate that each of these public workers has 2 family members of voting age they are supporting. We reach 3 million votes. Then factor in about 500,000 votes from small business and off shoot companies which work directly with public works. Add in the 500,000 senoir citizens that will not get direct wage reduction in their pensions. We reach a number without taking a breathe 4,000,000 people. Add in some leftists idiots which will vote for th left. We reach 40-50% of the base vote.
Meanwhile the private sector will pay for everything. More or less.
That in a nutshell. What they will agree to will be nothing more to the continuace of austerity. Because such a system can not provide growth. And it is why i understand the creditors position which they insist on privatizations because if you can't fire the public workers directly you indirectly lease them or sell the to the private sector. If privatizations freeze we will enter a new downward cycle. Even if debt forgivenss is given which i doubt we will not be able to sustain ourselves. Meanwhile taxing the private sector will only do to maintain the public sector rendering us still uncompetitive theoretically.
I am under the bad impression that this economical crisis will not end for at least 10 years if some key decisions are not made.
If we continue like this we will only remain in europe as a cancer. I try to stay hopeful but the whole mess simply sucks. I can not understand how people all people can be so collectivly stupid and ignore simple logic. Greeks and europeans but mainly greeks.
Maybe it is time i stopped involving myself in the news on how things are going. In any case my hard work and efforts are what are to be taxed in any case, so i fcked no matter what. Why worry about it.
Mr. Kastner,
Yes i agree with you. We are a crazy bunch of people. Could be brilliant but very stupid too. Just listen to the people. "We want to end austrerity but we don't want to leave th euro." Then you have, "We want to stay in the euro but the loans are to be forgiven..." And the voice "Grexit now" The 3rd voice sounds like they know what they want. the 1st 2 don't. We are definately crazy. I'll Agree with Antonoitte on this point that w do need some psychiatric help.
Sincrely,
V
@ V,
DeleteThe troika is a credit collecting consorcium. There is an obvious clash of interests, when the one who is deciding how are going to be saved, is the one that at the same time wants you to pay. This is why in normal bankruptcies, countries restructure their debt early. So that they don't have to beg the IMF to do it later.
I don't believe either that there will be debt restructuring, unless Greece forces it, by defaulting. It's just a carrot they use.
You can't also be serious that 8 billion of cuts in 1,5 years, in a dried out economy, are going to bring growth. But for the creditors, it's the designed plan and that's it.
Unless something changes, at some point we will have to choose Grexit. The big question will be, with which party do you want to default. I would trust KKE much more to prepare a plan on how to return to the drachma, than i can trust SYRIZA. Because in KKE, they would lock themselves in Perissos for 3 days and after they would come out and every minister would know exactly what to do and when to do it and execute with military order. With SYRIZA it would be the left hand doesn't know what the right hand is doing.
I don't believe either that SYRIZA can execute the program that itself proposed to the troika. We are back to the case of George Papandreou and PASOK. At some point, recession will be permanent, the targets of the program will be very much off, the troika will return to ask new cuts and we will have the same situation in 6 months-1 year from now.
Dear Anonymous 3:58,
DeleteGrexit will not happen any time soon. Just more can kicking. I was under the impression that tsipras was about to address the nation that we can not reach a fair agreement hence it is up to you (the people) if we are to continue down the spiral default and explain both aspects in detail.
I would respect such request to be made. Rather than this new agreement which is worse maintains clientism, kills the real economy and continues the spirals of bailouts and can kicking.
And to be completely honest when did any greek citizen knows what he wants. 70% of the people say stay in the eu zone at all costs. Ok if that is the case, Tsipras gave this to you, just like Samaras, Papademos, Papaandreou. No real reform and no model to come to growth.
And i don't care what kind of growth whether it is communistic growth or a captalistic growth. The 300 mps we have are all incompetent to present a national plan. Tsipras had a plan and i think he got what he wanted. Protect the public sector and the core senoir citizens at all cost as that is where the base of the vote is. I believ in his mind he invisions that maintaining office he will solve the problems int he long run. I wish him luck with this.
Although highly dispaointed with my government as a citizen of Greece i have to support them and this means paying my taxes fair or unfair.
KKE? Are you serious. I read alot of what they write and say. great ideas. Very funny and ironic that #1 80% of their voters want to stay in the euro. #2 KKE has openly stated time and time again that they do not wish to be the elected party of Greece. So why vote for them? If they had any hair on the ***** they would doctor a radical solution state and stand by it.
KKE is nothing but a bunch ofpeople whom have formed a party which say things without any responsibility. I should join them as an MP. Nice cushy position without any responisbility.
Unlimately if there is no debt restructuring we are a doomed nation. Plain and simple.
Sincerely,
V
@V: as usual, I agree with all of your comments. In particular, I like the last post -- I think you have a very good grasp of the situation, and few seem to understand that the real issue is what happens with the debt.
Delete@ Klaus
ReplyDeleteTo your questions headed "are you wearing blindfolds?"
The surplus. Until Greece leave the EZ (EU) plus one hour.
The investors. Until Greece leave the EZ (EU) plus 20 years.
The craziness. Until we all fall in love with a Greek.
Lennard
LOL
DeleteV
Well, several points must be made here: first of all FinMIn Varoufakis is quite clearly a dangerously narcissistic personality (Narkissos the Greek hunter that fell in love with his image in a pond). Such personalities are completely blind to status distinctions and social conventions and perform badly in fora like the Eurogroup. The guy gives lectures to everybody, usually with a paternalistic tone. Can you imagine Herr Schäuble being lectured in a condescending tone? In addition he clearly has broken several times the rules of Eurogroup etiquette, making his fellow FinMIns look like idiots. I suspect he is simply ignored and treated like an errant child, which is essentially what he is. However I pity his Eurogroup colleagues. In all probability he has taped them and everybody (including Herr Schäuble) will suffer the indignity of performing in his seminary lectures about how these fora really work.
ReplyDeleteSecondly the Eurogroup and similar are not there to take decisions or even rubber stamp them. They rarely, if ever, do that. Their basic function is a theatrical performance for the purpose of political expectations management. The decisions have been taken long before. Comparing them to company boards is misleading.
Finally to the company board thing. I have prepared countless presentations to boards and I have never come across one highly digested
board presentation that was not 100% obvious, with not an ounce of skill or judgement needed to make the decision. This gives rise to the following deceptively simple question: if the lower strata of the company are assumed to be flawless, competent and unbiased what do we need the board for? Fire them and give their over inflated compensation as dividend.
In my view the only way that bulletin point boards work is if the following hold:
a) All decisions are well within the board's skill set.
b) The company is functioning very well.
c) All lower strata are of the same mentality and career (ie bankers preparing points for bankers not EDP managers preparing for bankers or politicians)
d) All board members and lower strata are operating in the local market exclusively. In the sense that they are all Austrian bankers not likely going to jump on a plane a find a job in Greece or the US.
If the above hold then there is enough common understanding to make bulletin points decision making adequate. If not, then there could be problems, because it will become obvious that the board doesn't know what it is talking about and that it is easy to manipulate. In such a case complete loss of control is very likely.I think the answer to the question about why boards often ask for no prose and all bulletin points is in the phrase: "Doesn't he understand that we are here to make decisions and that we are not a debating club?" This indicates people with overinflated sense of importance, with more than a tinge of class superiority. This works only if the lower strata implicitly accept the deal, which is enforced by being blacklisted if you become a trouble maker. If the lower strata can fly to pastures new then such boards are in trouble.
Finally I remember Klaus talking about a major US bank that went belly up because a small investment bank in Oklahoma, operating on top of a gasoline station, was packaging loans to oil prospectors from Oklahoma banks in small batches and selling them to said bank. Apparently all the packages were below the point of alert and nobody looked at them carefully after the original contract was signed. Once the Oklahoma oil boom became the Oklahoma oil bust in 1984 it took the major bank down as hundreds of millions of packaged loans went bad in a matter of days. If this is not a cautionary tale about the dangers of boards not getting involved in occasional details I don't know what it is.
Glad you remember that historical failure of Continental Illinois Bank, triple-A rated until the 'accident' happened. This, however, was not a board problem because the board never saw a single deal (one account officer and his boss could alone sign off on each an every deal). It was a system failure in the sense that the bank had no aggregate limit for a source from which they purchased individual, small loans, but no bank had such limits (I am not even sure whether such limits are required under Basel-2/3).
DeleteHow could this problem have been checked in time?
Well, the bulk of those small loans had not been rated and once a month the board looked at the rating report. The CEO was on record for once having asked what was behind the relatively large (but in the context of total assets not worrying) sum of unrated loans. He was assured that this was only an administrative problem. Unfortunately, all those loans turned out to be worth zero.
And then virtually none of the loans had their collateral perfected. They had been approved as secured loans but were in fact unsecured as long as collateral had not been perfected. The control for that was the monthly exceptions report which was reviewed with the ExVP in charge of all commercial banking. And then the following scene was recorded:
The Controller had mountains of exceptions report before him on the table and warned the head of lending that things were getting out of control. The head of lending gave the standard answer that controllers are beancounters and don't understand business; that it just took a while to get liens perfected. So far so good. That happens all the time.
The real problem was the ExVP, the boss of both of them. The report later said that "the ExVP assumed a neutral position". Well, there are no controls in the entire world which protect against such managerial lack of responsibility.
@ Klaus
ReplyDeleteYes, they took Lazard and others in as consultants. Syriza hire consultants (OECD, ILO, you etc.) like all bad managements do. They hire parties and people they think are sympathetic to their thinking. When they don't get the solutions they have decided beforehand that they want,they fire them, or, worse, they go "cherry picking". They then present their plan as being recommended by OECD, ILO and Klaus Kastner, voila.
Lennard